Most people have either a love or hate relationship with the ORSA. There doesn’t seem to be much in between - a bit like Marmite!
Over time we have seen increasing numbers of people enter the ‘love’ camp as they become more comfortable with the requirements, have a number of ORSA’s processes under their belt and have seen the benefits in practice. However there are still many that are firmly fixed in the ‘hate’ camp.
In this blog we explore some of the reasons to both love and hate ORSAs, and suggest some practical steps to encourage more in your organisation to embrace the ORSA.
Those that love ORSA seem to like it for a number of reasons, all of which are interlinked:
- their board loves it and are really engaged in the process
- it acts as a single reference point for anyone looking to learn about the business
- it is a powerful management tool
The board's enthusiasm for ORSA, or lack of it, seems to be a main driver of whether individuals and companies value the ORSA. A really engaged board can help shape the ORSA and wholly embed it in the business.
"A good ORSA can really benefit the firm by being a powerful tool to use in decision making"
Linked to this, as well as being another significant reason why people love ORSA is that it acts as single reference point for anyone looking to learn about the business. It can be given to any new member of senior management, board member, or regulator! as an introduction to the company’s structure, products, risks and strategy.
Finally a good ORSA can really benefit the firm by being a powerful tool to use in decision making. Board members can suddenly see how all the various items presented to them over the year (capital requirements, risk appetite triggers, stress and scenario testing for example) link together to tell the story of the business and help better considered decisions to be made.
The three most common complaints that we hear in relation to ORSAs are:
- they are not telling us anything that we don’t already know
- they are too long
- it is just a document for the regulator and adds no value to us
"Another significant reason why people love ORSA is that it acts as single reference point for anyone looking to learn about the business"
The first complaint appears to come from those companies for whom their overall risk framework is relatively well embedded and hence the ORSA report is repeating information already presented in other formats during the year. However if the ORSA document is simply a repetition of lots of material presented during the year perhaps it is a missed opportunity as the ORSA should tell a story about how all these individual pieces link together rather than just regurgitating information.
The optimal length of an ORSA is also topic of much debate. At our recent Solvency II ‘must do’ seminar there was much debate around guest speaker Elliott Varnell’s proposal that the optimal length of an ORSA was 30 pages. We can sympathise with those damaging the planet each time they print the next version of their ORSA – there is a lot to squeeze into those pages. However for those stuck in that camp it is worth thinking about whether you really need all the detail or whether a short summary that tells the story plus a reference to full documents stored elsewhere may be more appropriate and may help bring out the full value of the ORSA.
"A really engaged board can help shape the ORSA and wholly embed it in the business"
If you are just doing the ORSA to just tick a regulatory box then you will not get any of the valuable benefits. If the authors of the ORSA don’t buy in then it will not be an engaging document and will not get the all-important board engagement.
So our top tips are:
- take time writing your ORSA
- ensure that someone who can write well creates your ORSA and tells that all important ‘story’
- remember that the ORSA will develop, it may not be perfect now but over time you can achieve perfection
- take on PRA feedback but make sure that the ORSA remains your OWN!